March 2026

Estimated read time: 4 minutes

Geopolitical tensions intensified sharply in February as US–Israeli strikes on Iran were followed by retaliation and disruption to oil flows through the Strait of Hormuz. Markets reacted as expected: oil prices rose, energy and defence stocks strengthened, and US technology shares remained under pressure. Meanwhile, outside the US, markets showed greater resilience, with the UK and parts of Europe performing relatively well.

Escalation in the Middle East

Geopolitical tensions increased sharply as US–Israeli strikes in Iran were followed by retaliation and disruption to oil flows through the Strait of Hormuz. Market reactions were as expected – with commodity assets, notably oil, rising sharply and equities coming under pressure. Over the month, the rotation out of asset light (such as technology/software) into asset heavy (e.g. utilities, mining and energy) sectors continued, driven by investors’ assessment of the relative impact of AI.

The most significant developments unfolded around mid-March, with coordinated US and Israeli strikes on Iran, including the capital, Tehran, killing Iran’s Supreme Leader and targeting major military infrastructure. Iran responded with missile and drone attacks on Israel, US bases and parts of the Gulf. The confrontation has broadened beyond the initial exchange, with proxy groups and neighbouring states increasingly drawn in and the wider region on edge.

Crucially, commercial vessels are steering clear of the Strait of Hormuz, a narrow passage through which around 20% of global oil trade passes, as insurers and shipowners reassess the risks. Energy markets reacted quickly when supply is threatened. Oil prices have jumped, freight and insurance costs have risen, and investors have sought refuge in gold and government bonds.

If the conflict proves contained, markets could stabilise once the initial shock fades, as they often have after geopolitical flare-ups. A prolonged disruption to oil flows, however, would risk higher inflation, renewed pressure on consumers and a headache for central banks that were only just beginning to see price pressures ease. This is not just a regional issue; it has clear global economic consequences. That said, markets have historically absorbed geopolitical shocks once the immediate uncertainty passes, and much will depend on whether tensions escalate further or begin to cool.

Away from geopolitics, a shift in market leadership that began last year has continued into 2026, with parts of the US technology sector feeling distinctly overextended. AI’s recent surge into the mainstream has changed the tone – not every business needs a human with hopes, dreams and plenty of years. At enthusiasm peaks, prices can become detached from reality, leading to weakness in software firms and even wealth managers. Meanwhile, asset heavy sectors such as mining, utilities and energy have gained ground, helping the UK market perform relatively strongly. We explore these ideas further in the questions below.

And finally, tariffs, because it would not be a monthly update without them. The US Supreme Court ruled that Trump’s emergency IEEPA tariffs were unlawful, potentially triggering refund claims worth billions. Trump took it well – jokes. No, he promptly announced a 15% tariff on the entire world, though it can only last 150 days without Congressional approval. In short, tariff uncertainty remains very much alive.

Bottom line

Markets have mostly started 2026 strongly, and it is healthy to see gains driven by more than just a handful of US technology companies. While geopolitical tensions and policy uncertainty are reminders that the path is unlikely to be smooth, there are steps that can be taken to help insulate portfolios from these shocks. One simple step is to ensure your portfolio does not live or die by one theme, sector or type of stock. That will not prevent every setback, but it may help you sleep more soundly.

Q&A

What’s on your mind?

Should I be worried about investing at the moment as markets continue to go up?

One of the most common questions investors ask is whether they should really be investing when markets are at record levels. The instinct is understandable. However, the evidence suggests that trying to time markets is rarely successful.

Markets typically rise over time as corporate earnings grow. While there are setbacks along the way, a period in which positive sentiment and increased risk appetite can drive markets higher. It is also important to remember that different regions and asset classes perform at different times. In recent months, markets outside the US have been stronger, helping to offset US weakness in many portfolios.

History also shows that not investing at all presents greater long-term risk than investing at all-time highs. Missing just a handful of the strongest days over a multi-decade period can materially reduce portfolio returns. Those days often occur when investors least expect them, which is why sitting on the sidelines can be costly.

Why has the UK stock market continued to perform well?

If you read UK newspapers, you could be forgiven for thinking the country is weeks from collapse. Yet despite the headlines, the UK stock market has moved higher in 2025 and into 2026.

The UK market has a different structure to the US. It has less exposure to expensive US technology shares and more exposure to sectors currently benefiting from global trends. Energy companies such as BP and Shell have supported performance as oil prices rose. The UK also has a meaningful weighting in banks and healthcare, and exposure to defence names such as Rolls-Royce and BAE, which have benefited from rising global tensions.

Mining companies including Glencore and Fresnillo have also gained as higher gold and silver prices and demand linked to infrastructure and the green transition have supported the sector. Meanwhile, UK financials have had a strong start to the year, with banks and insurers reporting profits above market expectations.

What has been driving US stock market underperformance?

After years of outperformance, the US has lagged global peers in 2025 and into 2026, marking one of its weakest starts relative to the rest of the world in decades.

The slowdown has largely reflected cooling momentum in technology-led growth themes. The largest technology companies have committed significant sums to AI investment, but much of the supply chain spending has yet to translate into broad-based earnings upgrades. More recently, leadership has rotated toward asset heavy sectors such as energy, materials and consumer staples.

Equally weighted US indices, which reduce the dominance of the largest companies, have generally performed better than traditional market-cap weighted indices. With a large share of the US market concentrated in a relatively small number of names, this shift in leadership has had a noticeable impact on headline returns and reinforces the importance of diversification.

Month by Numbers (As at 28th February 2026)

Equities

• UK: +7.30%
• Europe: +3.51%
• US: -0.91%
• Emerging Markets: +4.95%
• Japan: +9.90%

Bonds / Rates

• UK Base Rate: 0.00% change (3.75%)
• Fed Funds Rate: 0.00% change (3.75%)
• UK 10-Year Yield: -0.22% (4.30%)
• US 10-Year Yield: -0.30% (3.96%)

Currencies

• GBP / USD: -1.49% (1.35)
• GBP / EUR: -0.69% (1.15)
• DXY (USD Index): +0.64% (97.61)

Commodities

• Gold: +8.48% (5,277.90)
• Oil (Brent): +2.53% (72.48)

Noteworthy

• Microsoft: -8.70%